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Helping People Get A Fresh Financial Start to Regain Financial Independence

Helping People Get A Fresh Financial Start to Regain Financial Independence

What Are the Common Causes of Bankruptcy?

On Behalf of | Apr 14, 2018 | Bankruptcy


If you are considering bankruptcy, you may be feeling unsure about whether or not you qualify. While anyone can attempt to declare bankruptcy, certain financial hardships are routinely dealt with and more likely to be resolved smoothly. These are six common situations that lead to bankruptcy and how they may be applicable to your unique situation.

Economic Downturns

One of the most reliable predictors of bankruptcy is the financial health of the nation. In 2009, in the wake of the Great Recession, an estimated 1.41 million individuals filed for bankruptcy. That number has since declined as the economy recovers, but not everyone has emerged financially secure. Debt, underemployment, and a rising cost of living are still squeezing many average Americans.


Owning a home is highly rewarding, but it comes with its own set of risks and unpredictable expenses. A mortgage payment represents a large and inflexible monthly expense; when you don’t have the money to pay on time, the late fees and stacked payments can become overwhelming. Foreclosure is more often seen in Chapter 13 bankruptcies, which work with creditors to pay off outstanding debts in exchange for keeping valuable assets like houses and cars. Rather than losing your house to foreclosure, speak to a bankruptcy attorney to find a more stable solution that works for both you and your lender.


Divorce is almost never painless, and splitting your finances may lead to messy and unequal outcomes. When you find that you are left saddled with most of the debts and few of the assets of a marriage, declaring a fresh start may be your best option. Chapter 7 bankruptcies, which discharge all eligible debts, are commonly used to wipe the slate clean post-divorce. If you are still married and your spouse is also anxious about debts, you may want to discuss filing for bankruptcy as a couple before parting ways. This can dramatically simplify the divorce process and prevent you from acquiring any debts that you cannot discharge later. Before heading straight to court, working together may prove to be better for both parties.


Unemployment, even with benefits, disrupts life for all but the most prepared. If you are skilled or lucky, you may be able to net a suitable new role before you feel the financial pinch. At other times, disability or poor job prospects may prevent you from supporting your previous lifestyle. Reducing your expenses and streamlining your assets may be necessary in this case to stabilize and find a new normal.

Medical Debt

Bankruptcies due to medical debt were more common before the Affordable Care Act, but it is still easy for medical expenses to outpace your insurance coverage. When that happens, you may face a choice between your financial health and your family’s well-being. This hard decision doesn’t have to shadow you for the rest of your life. Medical debt is typically discharged through a Chapter 7 bankruptcy.

Credit Card Debt

Credit card debt is often the result of or made worse by the expensive life events listed earlier. A sudden toothache or malfunctioning car can be all it takes to deplete your savings and leave you scrambling to recover. In these cases, a credit card may seem like the best or only way to get back on your feet. Most consumers manage to pay their credit card bills each month, but if left too long, they soon become unmanageable. In time, mounting interest can leave you with a higher balance than you ever spent. Once the creditor then sells your debt to a collections agency, your life becomes an endless stream of phone calls and harassment. Of course, for many households, there is no single cause of bankruptcy. As you struggle to buy groceries and still make a dent in your debt, you may start falling behind on mortgage payments or other bills. When the anxiety of this lifestyle becomes worse than the consequences of default, it’s time to consider bankruptcy. Contact us at Lynch & Belch P.C. to learn more about your specific case and how we can help ease your financial burdens.

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